Leverage on managed account

[benkorea]

Hey,

I am wondering about something. The retail spot forex trading mostly has 1:50 or 1:100 leverage. Sometimes, it's higher. I even wonder how I could get an account with, let's say, 1:20 leverage.

Recently, I have been surfing around to see what the account managers have to offer. Mostly, they manage accounts with leverages of 1:1, 1:2, 1:4, 1:5 and rarely over 1:10.

So I have some questions about this. Am I commiting a suicide having a leverage higher than most of the account managers (it's like the spot forex industry would already be set to get me broke!! Where is the purpose, I think a long lasting and profitable customer is better (for the brokerage business) than one who goes bankrupt )? I suppose they (account managers) are experienced and they do realize the risk of Forex trading better than I would. OR, are they oblige to trade with lower leverages in order to secure or calm their customers?

Is there something I don't understand at all OR am I not looking at the good places?

Fellow traders, your opinion or knowledge is welcome!

[elmagd2000]

Originally posted by benkorea

Am I commiting a suicide having a leverage higher than most of the account managers

Yes, the more leverage used the more risk. It is related to loss ratio. High leverages can wipe your account out in short time. lets use figures:
you have 50k and have 2 options 100:1 and 10:1. assuming you will use 100% of equity ( this is imposible of course) to trade Eur/Usd :

- !00:1 you can open 50 lot. 30 pip loss means 1500 pip total and 15k loss. you lost almost 30% of equity in one shoot.

- 10:1 you open 5 lot. 30 pip loss means 150 pip total and 1.5k loss. you lost 3% of equity.

P.S. It goes both ways. meaning if you have a proven strategy with good winning ratio. It is better to use 50:1 for example to get the best return on investment

Hope I made it clear.

Hani

[Bank Trader]

Keep in mind that leveraging is a tool. Leveraging your money is a good way to maximize a winning position. For example, you can add to an already existing position by leveraging. However, keep in mind that leveraging is dangerous and your risk mangement techniques must be implemented. If you bought EUR at 1.1950 and then again at 1.2025, your average is 1.19875. So why not raise your sl to that level giving you the ability to leverage and maximize your view without risking going into the red on the view. In the end, leveraging is a tool to use to maximize winning positions. Anyone that leverages over 15-1 is going to lose money in the end.

[elmagd2000]

Banktrader,

Would you kindly detail how to use leveraging successfully?

Hani

[Bank Trader]

In FX, there are a few ways to use leverage as a tool to maximize your trading.

First and foremost, here are a few pieces of advice.

1. The all of the best traders have lots of losing trades. There is just no way to be right all the time. Your going to lose money on trades, your going to make money on trades. The key is to have a 50% record or better, and when I say better anything in the 50-65% area is great!

2. Risk reward trading is the focus. How many points do you risk verse how many you target to make. Anything less than 1.5 to 1 will result in a low chance of making money.

3. Leveraging allows you to take less capital into a trade, but it shouldn't be used as a way to take 5-10 k and to be trading 250,000 utilizing the 50-1 leverage. Having said that there are times where you can leverage your position to the max without risking your initial capital. I can explain this to you, but first.

What you should do is this.

Talk to me, tell me how much money you have to trade. And I will tell you exactly how much your position sizes should be and how to use leveraging to maximize your returns.

[elmagd2000]

To make it more benefitial,
assume 2 accounts, one funded with 5k and the other 50k

Thanks
Hani

[Bank Trader]

What are the targeted returns on each of the accounts. What is the allotted max drawdown per month?

[elmagd2000]

5k account:
- Targeted 20% monthly
- Max dd 5%

50k account:
- Targeted 50% monthly
- Max dd 10%